What Does a Financial Advisor Do?
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What is a financial advisor?
The catch-all term "financial advisor" is used to describe a wide variety of people and services, including investment managers, financial consultants and financial planners. A financial advisor helps you manage your finances, or manages them for you.
The term "financial advisor" can refer to people with a variety of designations, including:
Certified Financial Planner (CFP): To use the CFP designation from the Certified Financial Planner Board of Standards, an advisor must complete a lengthy education requirement, pass a stringent test and demonstrate work experience.
Registered investment advisor (RIA): RIAs (also called investment advisors) are registered with the U.S. Securities and Exchange Commission or a state regulator, depending on the size of their company. Some focus on investment portfolios, others take a more holistic, financial planning approach.
Wealth managers: Wealth management services typically concentrate on clients with a high net worth and provide holistic financial management.
What do financial advisors do?
Generally speaking, a financial advisor will assess your current financial situation — including your assets, debts and expenses — identify areas for improvement, and help you create a financial plan.
Most financial advisors do the following:
Help you create an emergency fund.
Assist with saving and budgeting.
Plan to meet short- and long-term goals.
Retirement planning.
Tax planning.
Explain various account structures and investment products that make sense for your situation.
Identify the right asset allocation or investment mix for your portfolio.
Help create plans to pay off debt.
Investment management.
In some cases, you can choose which services you want or need based on the type of financial advisor you select. For example, a traditional advisor will likely offer personalized, hands-on guidance for an ongoing fee. A robo-advisor is a low-cost, automated portfolio management service, typically best for those who want help managing their investments.
» Looking for an advisor? View our picks for the year’s best financial advisors
Fees $1,000 and up per year (free initial consultation) | Fees 0.30% management fee | Fees Up to 1% per year |
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When to get a financial advisor
You may want to work with a financial advisor if you are:
Struggling to prioritize your financial goals
Need a plan for where and how to save
Want help with investment management
Financial advisors bring an expert and outside view to your finances, take a holistic look at your situation and suggest improvements. Financial advisors can also help you navigate complex financial matters such as taxes, estate planning and paying down debt, or help you invest with a certain strategy.
A good financial advisor or robo-advisor can be worth the cost if you're able to save more money, cut your expenses or better plan for the future. A financial advisor can also help you feel more secure in your financial situation, which can be priceless.
» Ready to start? Here's how to choose a financial advisor.
Is it worth getting a financial advisor?
There are many different types of financial advisors to choose from and considerations to make when deciding who is right for you. Think through the following factors:
End goal: What would you ultimately like to achieve (e.g., investment recommendations vs. holistic financial planning)?
Comfort level: How much experience and confidence do you have in your own investing prowess?
One vs. many: Do you prefer building a long-term relationship with one go-to person or are you willing to consult with different advisors when questions arise?
In-person vs. virtual: Do you prefer meeting face-to-face or will a conference call or video conference suffice?
Cost: How much are you willing to pay for advice and guidance?
Remember to interview various advisors to find someone you feel comfortable discussing your personal financial situation with. You can use our list of 10 questions to ask a financial advisor.
Can a financial advisor help me with crypto investments?
Financial advisors can help with crypto investments. However, crypto and crypto taxes are relatively new to the investment world, and some financial advisors may know the area better than others. Cryptocurrencies may go up in value, but some advisors may see them as speculative rather than real investments.
How do financial advisors get paid?
Financial advisors make money in different ways.
Some advisors charge an annual fee that is a percentage of the amount of assets they manage for you.
Some get commissions from the products they sell to you (annuities, life insurance, mutual funds, etc.).
Some charge commissions on trades they place on your behalf.
Some charge an hourly or flat fee for the services they provide.
Often, financial advisor fees are a combination of these methods. Don’t be afraid to ask an advisor what they charge, and compare their fees to others before moving forward.